Summary:

There’s a new infrastructure investor in town. Former Battery Ventures general partner, Sunil Dhaliwal has formed a $40 million early stage fund for startups playing in scale out infrastructure and the growth of data.

Sunil Dhaliwal, partner at Amplify Partners
photo: Amplify Partners

A former Battery Ventures general partner has left the venerable Boston firm to create the $40-million Amplify Partners  fund aimed at investing in seed and early stage infrastructure startups. Sunil Dhaliwal, who is the sole managing partner at Cambridge, Mass.-based Amplify, has so far raised $16 million of the fund’s goal and brought on Farah Giga over from Valhalla Partners as a principal based in San Francisco.

As for the fund, his goal is to invest between $50,000 and $1.5 million as part of a syndicate of other venture firms in seed or Series A deals. He plans to do about eight to 10 deals a year, which is a lot for such a small shop, but Dhaliwal plans to bring in a team of experts from the industry to help mentor startups. He declined to give names, but he says they are operational and architecture experts, who will take equity stakes from the firm — not from the individual company — in exchange for their help.

It’s an interesting model for the VC world, where there is an evident split between the giant, big-name funds and smaller, niche players. The NVCA recently released its fourth quarter 2012 fund-raising data that showed the top five venture capital funds accounted for 55 percent of total fundraising this quarter, noting that niche, smaller funds and giant funds made up the bulk of the new fund raises. Amplify is clearly on the niche end.

So far current Amplify Partners portfolio companies include AppNeta, Continuuity, Datadog, Fastly, Wibidata, as well as multiple companies still in stealth mode.

So what else is Dhaliwal planning to invest in? The big picture is in companies that are part of the upcoming shift in computing, networking and storage infrastructure thanks to scaled out architectures, the growth of data, and real-time infrastructure. Most of our readers are well aware of the massive shift occurring today in technology infrastructure. Between scale out computing (hello, Facebook and the Open Compute Project), disruptions in networking (shout out to Nicira!) and changes in how startups and enterprises source their computing (what’s up AWS and devops!), we’re seeing the kind of shift that hits computing once a generation.

Dhaliwal calls it Infrastructure 2.0 and he says that the trillion-dollar IT industry is under siege, which means the giants are spending big on what I think of as “save-me deals,” such as Cisco spending $1.2 billion for Meraki, or VMware shelling out $1.26 billion for Nicira.

“For the first time there are companies with trillions of dollars of market cap and they are absolutely under threat in a way they haven’t been before,” Dhaliwal said in an interview. “These are the types of changes that tell me a lot of those companies will not survive with a trillion dollars in market cap. A couple hundred billion of that amount will get transferred to challengers and startups.”

It’s not just the technical shift that Dhaliwal finds promising. He’s also attuned to the cultural shift — maybe call it the “devopsification” of IT — as the buyers of big IT change, and even the older buyers look for less of the multi-million sales pitch from a guy in a suit and more of the expertise and problem-solving that comes in part from the open-source world.

“There are all these technical changes and those merge with the cultural … and that’s pretty antithetical to how infrastructure 1.0 has run,” Dhaliwal said. “Very few of those companies have done anything to adapt to the change in who the early adopters are and how to sell to them.”

Dhaliwal says that when he started out investing in infrastructure in 1998 he used to visit the CIOs of big Wall Street banks, because if he understood their needs he was confident that 18 to 24 months later those would be the needs of most IT buyers. Now the leading indicator customers are the Facebooks and web guys. That doesn’t mean the Wall Street folks aren’t important. Dhaliwal went to them to ask if they saw the same infrastructure shifts brewing when he was thinking about raising his fund.

They not only agreed with him, they handed him checks. With that base of limited partners investing — as well as a few other sources of capital — Amplify and Dhaliwal were on their way.

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